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Here's How a Risk-Averse Investor Can Use a Savings Account to Create a Retirement Corpus
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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
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Retirement is a golden period where you have all the time to pursue your passion. However, this is even a period where you do not have any constant income flow while your expenses to meet your daily living continue. So, to ensure a stress-free retired life, you must begin your retirement planning as soon as you start working. A crucial constituent of this financial plan is investing your surplus funds in high-return investments such as equity SIP (systematic investment plan) instruments.
Why begin investing for retirement through an equity SIP instrument?
An SIP is an investment mode where a predetermined amount is automatically deducted from your bank savings account on a predefined date towards a preferred equity fund. This process keeps continuing until you stop the SIP. Investing in equity funds through an SIP provides you with the benefit of compounding effect and rupee cost averaging over the long run.
So, the longer you remain invested in an equity fund through an SIP, the better-averaging benefit you avail, especially during market volatility. This is because during volatile market conditions, you buy a higher number of quality mutual fund units at a lower cost, which fetches you higher returns during the bullish market phase.
Also, the sooner you start investing, the lesser you require to contribute to reach your retirement corpus. Beginning your investment for retirement early in your work career also instils financial discipline, which allows you to make the most out of the power of compounding. Owing to the compounding benefit, the return generated on your SIP is reinvested to generate higher returns over a long time span.
For instance, a 20-year-old would require contributing Rs 2,470 to an equity SIP at an assumed rate of return of 13 per cent per annum if they want to create a post-retirement corpus of Rs 4.04 crore by the time they reach the age of 60. For a 55-year-old, building the same post-retirement corpus for over a span of five years at the same annualised return rate would require a monthly equity SIP contribution of Rs 4.77 lakh. So, by beginning early, you can save a higher corpus with smaller contributions.
Shift post-retirement corpus to a bank savings account –
Once you are a few years away from your post-retirement goal, you must steadily and slowly move your equity exposure in the SIP route to a secure and safe financial product such as a savings bank account. Note that to keep your post-retirement corpus, you must have a bank account dedicated solely for this purpose. So, ensure you open a new bank account to avoid the risk of mixing your goal-oriented fund with money parked for meeting your prevailing lifestyle expenditure.
Given the fact that there are distinct types of savings accounts designed to meet varying needs of individuals, you must select an ideal bank account. For this, you must compare savings accounts depending on distinct factors like minimum average balance, interest rate, overdraft facility, charges on withdrawal from ATM, etc. Once done, begin shifting the funds from equity investment to savings account.
Moving your corpus from the SIP mode to a bank savings account would offer your savings for retirement higher capital protection features than equities at a reasonable interest rate. If you want to get better savings returns on your post-retirement corpus, then ensure to research, assess, and compare to zero in on a higher bank interest on a savings account.
Ending note
You must consider reserving your post-retirement fund with a Kotak savings account as the bank ensures to offer unique benefits in the form of reward points on daily transactions, various offers and discounts on specific brands, easy money management through overdraft facility and Kotak ActivMoney option, preferential pricing on loans and other banking products, and special benefits to senior citizens.
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